Kevin O’Leary
A CONVERSATION WITH...
one portion in a box so that people that live in condominiums in metropolitan areas can order it up, have it come to their door, and make one meal.” I thought, “That’s crazy. Why would that work? That sounds so inefficient.” And we just sold it to Albertsons last week for $300 million. It’s the biggest exit in Shark Tank history and a 1,300% return for me. That just goes to show that you never know what’s going to work. The point is you don’t have Q: Yeah, that was a great deal. Congratulations. Speaking of deals, what do you think matters more over the long term, finding the right deal or having the right structure? KEVIN O’LEARY: I think it’s a combination of both. I look at this in terms of when you put money at risk, when you put it in harm’s way – my mother used to have a saying: “Never spend the principal, just the interest.” She was the same way on stocks. She wanted to get paid a dividend. Her whole premise was that when you invest in something, it has to provide an ongoing return in addition to potential capital gains over time, and I think that’s a very good philosophy. So the structure of what I do when I do venture investing is very much venture debt. to be an equity owner to align your interests with an entrepreneur.
I often will loan the company half a million dollars, take 5% warrants in their equity, and have a royalty rate on all their sales to pay back my principal so that I have a structure in place that assures that I get my capital back most of the time. I’ve learned over time that getting your money back is more important – preservation sometimes is more important than performance. Getting capital back, protecting it so you can fight another day ends up being paramount. Q: On the show, you’re a huge fan of getting royalties... The one thing that I really love about royalties is in commodity investments because the commodity markets are very tough businesses that require a lot of capital. And, of course, the price of the product fluctuates wildly. What other kinds of businesses do you focus on royalties with if you’re going to get involved? KEVIN O’LEARY: Well, when I’m offered an opportunity to invest in a family business... Let me give you an example. Something as ubiquitous and non-proprietary as cupcakes, I own a cupcake company – or at least I have a royalty stream from one – called Wicked Good Cupcakes. It’s the No. 1 cupcake company in America. It FedExes high-quality cupcakes in mason jars as gifts, all across the country. Every time one of those is sold, I get $0.45. I do not own equity in the company because it’s family-owned – it supports 42 family members. It makes millions of dollars a month, and we have a very comfortable relationship because our interests are aligned. I want them to sell more cupcakes, more pies,
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72 | November 2017
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